U.S. Insurance Regulation and Supervision – Practical Training for ASSAL Members Overview of U.S. Insurance Regulation and Supervision
Ekrem M. Sarper International Policy Advisor NAIC
Introduction Insurance Basic Role
Department Overview
Functions Of Insurance Regulation
Of The NAIC
Summary
Information On U.S. Industry
Interaction
Legislators
Between Regulators And
Insurance Supervision State
Regulation of Insurance
McCarran-Ferguson Act (1945) – “business of insurance” regulated by the states Department
of Insurance
Commissioner
/ Superintendent / Director
Mostly Appointed by Governor Elected – 12 states Appointed by Legislature - 1
Insurance Supervision Department
of Insurance
Commissioner, Deputy Commissioners Licensing – Agent/Broker Products Regulation Forms Rates
Insurer
Financial Regulation:
Licensing
& Admissions Financial Analysis & Examination Market
Conduct/Consumer Affairs
Legal Consumer Others
Education
Prototype Organization
Commissioner
Deputy
Deputy
Financial Analysis
Financial Examination
Company Licensing
Rates/Forms
Consumer Services
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Agent Licensing
Insurance Supervision Insurance
Total budgets 2010: $1.79 B Total budgets 2009: $1.60 B 11,590 full time employees
Funding
Department Data
Sources
Applications, Filing Fees & Assessments Fines & Penalties General Funds Premium Taxes
Overview of U.S. Regulation Insurance Regulators Protect Policyholders through: Solvency Surveillance (financial regulation) Ensure Appropriate & Equitable Rates (Products) Complex & Technical Nature Of Insurance Contracts (Consumer Services, products, transaction approval) Protect Consumers Against Fraud & Unethical Market Behavior (Market Conduct, Agents, Criminal Investigation) Foster Efficient Insurance Markets (Market Development) Restrict Ability Of Insurers To Withdraw From Certain Markets (Market Development)
To Enforce Insurance Laws Ensure Laws Are Followed & Implemented Correctly
7
Overview of U.S. Regulation
To Keep the Public Informed Consumer Protection Insure U Campaign
To Preserve Open, Competitive Markets Prevent Under-priced Products To Gain Market Share Ensure That Premium Levels Are Adequate To Maintain Insurer Solvency Continuously Monitor Insurers’ Financial Condition Ensure That Insurers Are Financially Able To Pay Claims
8
Overview of U.S. Regulation
Regulation of Direct Insurers & Reinsurers •Direct Insurance • Subject to Regulation by State(s) in Which the Insurer Is Admitted (Authorized/licensed) Carrier. • Regulation Applies to All Lines of Business (e.g., Life, Health, Property & Casualty, Auto, Professional Liability, Workers Compensation). • Regulatory Oversight of Rates, Financial Conditions, Accounting Standards, Market Conduct.
Reinsurance • Regulation for Reinsurers More Focused on Solvency and Credit Issues
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Role of the NAIC National
(NAIC) 56
Association of Insurance Commissioners
jurisdictions
50 states Washington, DC 5 U.S. “territories”
Executive
Office – Washington, DC Central Office – Kansas City, Missouri Capital Markets & Investment Analysis Office – New York, NY
Role of the NAIC
Triannual
Meetings of Members
Annual
Commissioner’s Retreat
Interim
Meetings
Committees,
Forces
Working Groups, Task
NAIC Committee Structure
Plenary Executive (EX1) Subcommittee – Internal Administration Information Systems Task Force (A) Committee – Life Insurance & Annuities (B) Committee – Health Insurance and Managed Care (C) Committee – Property & Casualty Insurance (D) Committee – Market Regulation and Consumer Affairs (E) Committee – Financial Condition
(F) Committee – Financial Regulation Standards and Accreditation
SVO Initiatives Working Group AIG Managing Task Force Information Systems Task Force Climate Change and Global Warming Task Force Government Relations Leadership Council International Insurance Relations Leadership Group Long-Term Care Task Force Producer Licensing Task Force Solvency Modernization Initiative Task Force Speed to Market Task Force Market Regulation Accreditation Task Force Multi-state Enforcement Task Force Regulatory Modernization Task Force
(G) Committee – International Insurance Relations NAIC/Industry Liaison Committee NAIC/Consumer Liaison Committee NAIC/State Government Liaison Committee
What the NAIC Does for States
Specifically… • Array of Informational Tools, Resources and Products • Insurance Company Financial Data, Market Conduct Data, Securities Valuation Data, Model Laws and Industry Publications • Legal Support • Research Support • Education
• Opportunities for Regulators to Come Together
13
Illustration of NAIC 2010 Activities
3 National Meetings with 5,099 Total Attendees 61 NAIC Interim Meetings 2,387 Conference Calls (Member Toll-Free Access) 18 Funded Consumer Representatives 732 Million Total Media Impressions (TV, Radio PSAs, Consumer Alerts) 1,100+ Fulfilled Media Requests 6.5 Million Visits to NAIC Website (www.naic.org) 354,932 Visits to Insure U Website (www.insureUonline.org) 6.4 Million Visits to NAIC’s Regulator-Only I-SITE Website 565,475 Insurance Product Submissions to The System for Electronic Rate and Form Filing (SERFF) 37,013 Online Fraud Referrals to Members 4,721 Annual and Quarterly Financial Statements 193 NAIC Publications and Data Products 400 Million Data Elements in Financial Data Repository 4,868 Uniform Certificate of Authority Applications Transmitted to Members 209 Classroom or Online Education Courses 136,170 Fulfilled NAIC Help Desk Inquiries (Phone/E-mail) 13,650 Fulfilled Statutory Accounting & Financial Reporting Inquiries 2,178 Fulfilled Research Library Inquiries 9 Full Accreditation Reviews 8 Pre-Accreditation Reviews 42 Interim Accreditation Reviews
Ongoing Core Services
Model Laws
• Developed to Establish Standards • Can Be Adopted ‘As Is’ or Modified Slightly to Meet State Specific Needs
• Helps Consumers • Keeps Company Costs Down • New Plan for Consistent Review and Update
• Many Model Laws Become Nationwide Standards: • Accreditation Standards
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Ongoing Core Initiatives
Solvency and Accreditation • NAIC’s Financial Regulation & Accounting Division Provides Financial Regulation and Solvency Surveillance Support to States - Monitoring Approx. 1,300 Largest Insurers • 1989 Policy Statement - Financial Regulation Standards
• 1990 – Formal Certification Program – Accreditation •Annual Evaluation and Re-certification at 5 Year Intervals • Standards Are Flexible in Order to Adapt to Changing Market Needs • As of June 2009 – all 50 States Certified/Accredited
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Ongoing Core Initiatives
NAIC Publications • Currently, the NAIC Publishes Over 150 Insurance Related Products for use by Regulators, Insurers and Consumers • Top Sellers • Medicare Supplement Guides and Long-term Care Guides • Annual Statement Instructions and Annual Statement Blanks • Accounting Practices and Procedures • Valuation of Securities CD • Model Laws • Listing of Companies • Retaliation Guide
NAIC Education
• 81 Education Programs – Regulators and Public 17
Ongoing Core Initiatives
NAIC Research and Statistics •Actuarial Expertise (Life, Health and P&C) •Rate and Form Expertise •Economic Studies
•Regulatory Policy Analysis •Statistical Reports
•Market Analysis •Assist in monitoring states’ progress toward NAIC goals
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U.S. Insurance Market Total
insurers in the U.S. – 7,869
Property/casualty
– 2,737 Life/health/accident – 1,106 Others: HMO, Blue Cross/Shield, Fraternal Gross
insurance premium (USD) $1.787 Tr. Property/casualty
- $456B Life/health/accident - $1.2 Tr
Source: 2009 Insurance Dept. Resources Report
U.S. Insurance Market Largest
volume State
states – annual premium
2009 California: $221B New York: $152B Florida: $106B Texas: $98B Pennsylvania: $81B Vermont: $77B
2008 $220B $151B $105B $99B $81B $2B
Source: 2009 Insurance Dept. Resources Report
Global Insurance Market
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Jurisdiction
Premium Volume*
Market Share
United States Japan United Kingdom France Germany CALIFORNIA Italy PR China NEW YORK Netherlands FLORIDA TEXAS Canada South Korea Spain PENNSYLVANIA India Taiwan Australia ILLINOIS OHIO
$1,548,934 $505,956 $309,241 $283,070 $238,366 $209,304 $169,360 $163,047 $124,802 $108,144 $101,895 $ 99,396 $ 98,840 $ 91,963 $ 82,775 $ 80,683 $ 65,085 $ 63,647 $ 60,317 $ 59,369 $ 56,045
34.61% 11.31% 6.91% 6.33% 5.33% 4.68% 3.78% 3.64% 2.79% 2.42% 2.28% 2.22% 2.21% 2.05% 1.85% 1.80% 1.45% 1.42% 1.35% 1.33% 1.25%
* US $ million 2009 DPW
U.S. Insurance Market
“Producers” Total
= agents, brokers
licensed agents, brokers
6,032,018
Licensed Individuals
2,124,924
Resident 3,907,094 Non-resident 483,763
Licensed Business Entities
Source:
Report
2009 Insurance Dept. Resources
Interaction between Regulators and Legislators
State
House Senate NCSL (National Conference of State Legislators) NCOIL (National Conference of Insurance Legislators)
State
Legislature
Department of Insurance
Legislative Proposals, Consultation – Model Laws Authority to “Regulate” / Implement Laws
Hot Topics in the U.S.
U.S. Financial Regulatory Reform
On
July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA).
The
Bill is over 2300 pages long and consists of 17 Titles.
Much
of it relates to issues that are unrelated to insurance; however, the new law does establish a new federal role regarding insurance in a number of critical respects.
Resolve Companies that are “Too Big to Fail”
1.
Develop the standards for designating “systemically important financial institutions”
2.
Monitor the market & promote market discipline – eliminate expectations of bailouts
3.
Respond to emerging threats
Resolve Companies that are “Too Big to Fail”
Title I: Financial Stability Oversight Council (FSOC)
Financial Stability Oversight Council to identify risks to U.S. financial stability from the ongoing activities, material distress or failure of large interconnected financial companies, including insurance companies.
10 voting members (Treasury, Fed, Comptroller of the Currency, CFPB, SEC, FDIC, CFTC, FHFA, NCUA, member with “insurance expertise” (TBD)
5 non-voting members • Director of the Office of Financial Research (TBD) • Director of the Federal Insurance Office (Former IL Director Mike McRaith since June) • State insurance commissioner (MO Director John Huff) • State banking supervisor • State securities commissioner
Overview of FSOC Activities
The
Council has met 5 times on October 1, November 23, January 18, March 17 and May 24.
It
has focused on three main areas that could have an impact on insurers: Designations
of Non-Bank Financial Companies for supervision by the Fed
Conducting
a study and making recommendations on implementing the Volcker Rule
Conducting
a study and making Recommendation of implementing concentration limits on large financial firms
Our Message: One Size Does Not Fit All
Insurance
is a unique product
Traditional
insurance activities did not cause the financial crisis
Insurance
regulators already have welldeveloped systems for rehabilitating and/or unwinding troubled insurance companies
Liquidation of Unstable Companies
SIFIs are referred to the Federal Reserve, which shall impose “heightened prudential standards” If a SIFI becomes unstable: If an INSURANCE SIFI becomes unstable: Affirmative vote from 2/3 Fed Board of Governors & from 2/3 of Federal Deposit Insurance Corporation Liquidation under FDIC authority
Affirmative vote from 2/3 Fed Board of Governors & from the FIO Director Liquidation under state authority UNLESS state fails to act within 60 days – then FDIC steps in Difficult to imagine a scenario where the FDIC might become involved – ONE SIZE DOES NOT FIT ALL!
Shed Light on “Off the Books” Activities
The
Volcker Rule
New
restrictions on SIFIs engaging in proprietary trading Vague exception for insurance companies Rule coming in October 2011
Derivatives
SEC & CFTC working on rules Insurance use of derivatives: primarily to hedge against risk We are monitoring the development of new systems to track derivative transactions
Federal Insurance Office (Title V, Subtitle A)
Establishes a Federal Insurance Office (FIO), housed in the Treasury Department
Help the federal government gain a better understanding of the insurance market and negotiate international agreements
Does not give Treasury general supervisory or regulatory authority over the business of insurance.
No jurisdiction over solvency or capital
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Federal Insurance Office: Covered Agreements
The
Treasury department and the USTR have authority to enter into “covered agreements” international agreements that preempt state law if they are:
1) entered into between the U.S. and a foreign government, authority, or regulatory entity, and 2) relate to the recognition of prudential measures to the business of insurance or reinsurance that achieves a level of protection of insurance or reinsurance consumers that is substantially equivalent to the protection achieved under state law.
Federal Insurance Office: Covered Agreements
Preemption shall not include:
any State insurance measure that governs any insurer’s rates, premiums, underwriting, or sales practices;
any State coverage requirements for insurance;
application of the antitrust laws of any State to the business of insurance;
or any State insurance measure governing the capital or solvency of an insurer, except to the extent that such State insurance measure results in less favorable treatment of a non-United State insurer than a United States insurer;
Questions? Ekrem Sarper International Policy Advisor
[email protected] 202 471 3976